You Can't Buy A Car Without Agreeing To Arbitration

By consumerist.comDecember 18, 2007

Having failed at VW dealership, a Mother Jones reporter continued her journey to buy a car without signing an arbitration. She tried half a dozen dealerships over a month, and none of them would let her buy a car without signing an agreement waiving her right to sue. Finally, she found the car she wanted from a guy who was selling it on his own, but then the loan document from her bank contained a huge arbitration clause.

This brings to mind a famous case in the car industry. The case stated that if everyone has the same term an agreement and there was really no room for bargaining then the term may not be valid. If one really did not want to arbitrate they my try invoking this case saying they had no choice so the term is not valid.

@darkclawsofchaos: I really think it’s only a matter of time. I think the case of the young woman who was supposedly raped by Halliburton/KBR contractors will eventually raise some eyebrows, because her work contract contained an arbitration clause preventing her from suing.

@UCLAJason: You have a point – I wonder when this is going to come out more. One of the things you’re taught in first-year Contracts is that a valid contract requires negotiation, and that if one party has all the power, it doesn’t work. Now, one could say that people have the option of not entering into the contract, but with the pervasiveness of these clauses, you can do very little without running into one.

@Skiffer: The analogy you’re using doesn’t really hold up that well. It’s pretty easy for a dealer to get scummy, and she was trying to protect herself from that. She mentioned them illegally repossessing the car or changing the finance terms, or other things the manufacturer wouldn’t have anything to do with.

It would be like wanting to sue the pharmacist for putting the wrong drugs in your bottle, or charging you too much for them.

@camille_javal: I agree that you need a bargained for exchange though usually we must assume that a contract is a bargained for exchange. The specific case I was talking about is where everyone has the same provision so you do not have a choice but to agree. (I have not looked at the case in awhile, when I get a chance I will look again and post a link if I can find one). Anyway, for the employment contract situation no one is considered to be forced to work under one of these contracts because there are still many employers who do not require them. That really sucks for the women in Iraq. Something seriously needs to be done to protect people like her.

@swalve: I am not sure where you get your information. You certainly can waive your right to sue. This happens in other ways besides arbitration agreements (see settlement agreements which usually waive future rights to sue). Of course after signing one of these arbitration agreements you can still go to court and sue but the other side just needs to march in with the agreement and it is likely, depending on the circumstances, the case will be dismissed.

I have to defend the business side here, as a business owner, we can be sued for just about anything related to the transaction. You need to thank the courts for this current situation. Business owners cannot afford to not protect themselves from people who feel any mistake they make in their purchase cannot possibly be on them. Are there crooked dealers out there? Yes, but there are just as many crooked customers too. Our legal system no matter or good or bad it is, has eliminated the “simple handshake” deal. When people who cant afford cars stop buying them, and people who are lloking for a “free ride” quit playing the system, you as a consumer will no longer be asked to sign away your rights.

You might be able to get the arbitration clause overturned by claiming collusion. If the car dealer chooses the arbitration company, and that company has history for finding in favor of the car dealer (or whoever), then there is little chance you are getting a “fair” or “impartial” hearing.

Also, would a class action against the arbitratrion shops that appear to be conspiring with business be a possibility? Perhaps something like that would finally equalize the playing field, like it was supposed to do.

@htrodblder: I agree with you. Binding arbitration does make good business sense, in most cases, and probably keeps overall market costs down. If every dealership had to staff a legal team to handle every lawsuit, the average consumer would end up paying more.

Everyone is just lumping all arbitration together as “evil” because of some bad examples – such as the telecoms and the Haliburton fiasco.

Just bought a Toyota Corolla (New) from Champion Toyota in Corpus Christi Texas. They put a BA contract (seperate piece of paper) in front of me, I refused to sign it, they said “No problem” and put it away.

I bought an Acura about 2 years ago. The dealership encouraged me to sign an arbitration agreement with them; when I asked a little bit more about the details of such an agreement, the dealer quickly withdrew the document and moved on to other details. I never signed the document.

Curious that he was so quick to make the document disappear when I asked about it, huh?

@SacraBos:
You can not sue in class action here for multiple reasons. A class action is usually multiple plaintiffs with limited defendants. Here it is the opposite. If you found multiple plaintiffs who each had a problem with a different defendant then it is more appropriate to have individual case adjudication usually.

As far as I know you can not just get a contract invalidated for collusion or that an arbitrator is not impartial. Unless there is evidence that there was no real contract (a difficult burden to prove) the parties are assumed to have bargained for the exchange and mutually chosen the arbitrator. This is of course not the case in reality but the law up to now has largely looked the other way.

@Skiffer: First off, a car dealer is one of the last businesses I would want to waive my right to sue. They are notoriously shady and you’re performing a high-value transaction with them. Ever notice how the sleaziest industries are the ones these mandatory arbitration clauses are spreading fastest in? This is not a coincidence – arbitration “lowers their costs” by allowing them to get away with screwing people.

Also, I could maybe buy the argument that the court system is too expensive and risky for businesses and that arbitration could help everyone by giving us a cheaper product. But if that’s the case it seems like the solution is to fix/reform the legal system so that it’s reasonable and affordable rather than create a two-tier legal system where consumers have greatly diminished due process rights.

Moreover I think people have lost the point when it comes to arbitration.

Unless the contract provision can be invalidated on terms of public policy, which it has at times ([library.findlaw.com]), the upholding of an arbitration clause is seen as an upholding of consumer and business contract rights.

The reasoning generally goes like, If consumers did not want arbitration they either would modify the contract and negotiate before signing or not sign it and negotiate by “voting with their feet”. This is expressly why it is important that people know exactly what an arbitration clause is and does.

Moreover generally, the validity of an arbitration clause is generally not litigated in court but rather by arbitration (if the lawyer who drafts the agreement has any common sense). Ironically like a court, it is unlikely that an arbitrator will find that they do not have the power to hear the case unless if it is not in their interests to hear the case.

Generally “no meaningful right of appeal exists in arbitration. New Jersey has adopted a statute, N.J.S.A. 2A:24-1, et seq., that governs the enforceability of arbitration awards. The statute is modeled on the Federal Arbitration Act, 9 U.S.C. Â§1, et seq. Under either the New Jersey or federal statute, a court may overturn an arbitration award only under the most extreme and limited of circumstances, such as fraud or corruption.” “[A]n arbitration award is generally subject to judicial modification only if it contains an error that is “on its face gross, unmistakable, undebatable, or in manifest disregard of the applicable law and leading to an unjust result. Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479, 496, 610 A.2d 364 (1992).” [library.findlaw.com]

In summary, if consumers refused to sign the contract and agree to arbitration (unless of course they wanted it) they would negotiate more effectively.

Just as a note, arbitration is more effectively challenged when it is found that the written expression (what people usually think of a contract) does not represent the actual binding contract (what people actually agreed to even if unwritten) either expressed by the representations of the party who makes the contract (say when the mobile phone company will not let the consumer read the contract but they explain it) or when read with the rest of the document. Obviously though, the chances are slim when challenging.

@Curiousity: How are we supposed to “vote with our feet” when there are literally no dealers who will sell you a car without a binding arbitration clause? It seems to me like the only solution is for the government to explicitly outlaw these contract provisions.

@Curiousity: I doubt you deal with contract law. If you simply cross out a portion of a contract you dislike, without intent to dicuss or notify the other party of the material change you are SOL. It would be the same thing as reverting to a previous version of a contract at the last minute in a negotiation. Those things never hold up (Ive been to court on them four times).

Now, if they also initial the change, you are good to go.

I dont understand why everyone hates arbitration so much, the numbers actually favor consumers who bring claims vs. those who go to court.

@JustRunTheDamnBallBillick.: I agree. Unilateral changes by crossing out are not going to hold up. Best bet is to have the other party initial any changes or give some other written expression that they have agreed to the changes. Also, make sure the changes are made on both yours and the other party’s copy of the contract.

If the other party signs the contract after the changes, they have agreed to them.

Obviously written expressions are usually important, but there is a difference between changing it before a contract is signed (which is dickering) and after a contract is signed (which is unilaterally changing the contract).

Unilateral changes to a contract usually refers to when there is an existing contract and one party changes the contract after both parties have agreed to the contract. These changes would doubtfully hold up but do depend on the provisions of the contract – which is where I suspect that you are confused.

You do realize that companies negotiate all the time by having their lawyers bandy about contracts with each side modifying the contract in turn with the final contract agreed to either by both parties signing it or by the actions of the parties?

If you modify the contract, and the other party starts your phone service, generally this is seen as acceptance of the contract with the modifications.

They have as much as a burden as you do to read the contract before either signing it or acting upon the contract and fulfilling the terms.

The author should do her research. Get a Car Fax report, and weigh her options. If it’s a 2007 car and certified by the manufacturer, and thus has a clean carfax report, common sense should tell her it’s an honest transaction.

How many people do you know that have had to resort to sue or petition a car dealer for a 1yr old certified automobile? Aside from the random horror story read on-line, I’ve not seen any of my friends or family have to resort to such an extreme.

Stop playing the lottery and wasting your time. Just do research, get a good price, and keep it insured. If the 1 in a million happens and you need to arbitrate or sue, worry about it then.

@Curiousity: I think the problem may be one of proof. If your copy is the only one that has the cross outs how can you prove the cross outs did not occur later. If both parties have the cross outs you have better proof that indeed both parties did agree to the changes. To be super safe the initial next to the modification helps.

Of course there is a problem of proof, realistically however in most consumer transactions you cannot talk to anyone who has the authority to provide the initial or negotiate. You could provide alternative proof of the timing of the event such as a picture or video but obviously this is not ideal.

Pretty amusing — I just refinanced my car through Wachovia Dealer Services to get the interest rate down (apparently one can do this every 6 months as long as the mileage is under 100,000 miles). They sent me a generic form that I filled out, crossing out the ‘binding arbitration’ bit and putting my initials on the side.

WDS went ahead and funded the loan, sent me all sorts of welcome emails and letters… followed by a phone call last week from some CSR saying they were going to resend the paperwork to me since it couldn’t have anything crossed out on it. I said that I didn’t agree to the binding arbitration and told her why. She was fairly uninformed about the whole thing and offered to have a supervisor call me back. I agreed. I have yet to hear back from a supervisor, although I did get duplicate sets of paperwork in the mail the other day.

I’m not sure if they can force me to sign over my rights as they’ve already gone ahead and funded the loan (and accepted one, coming up on two payments on it).

For those who are curious – an example of unilateral modification through the actions of one party can be found in the At&t Service Agreement:

“We may change any terms, conditions, rates, fees, expenses, or charges regarding your service at any time. We will provide you with notice of such changes (other than changes to governmental fees, proportional charges for governmental mandates, roaming rates or administrative charges) either in your monthly bill or separately.”

@Buran: A customer trying to rip the dealer off, that game works both ways.

I haven’t sold cars but it’s the same game in electronics. Someone tried to return a wireless mouse after two months with no receipt or packaging and when refused they started piling on the threats from lawsuits to whatever.

But for one large area of the issue: presumably, you would sue because of fraud, primarily, in having the car misrepresented to you, or bait and switch-or even the little old lady who was being held against her will at the dealership and called 911. You can’t legally sign a waiver to allow someone to commit fraud or an illegal act. Signing for a waiver doesn’t mean the dealer gets a pass to break the law.

@htrodblder: you have a point & arbitration should not just be thrown out the window, but what passes as arbitration these days is questionable. arbitrators are supposed to be completely neutral to a transaction with no vested interest. furthermore, arbitration is supposed to cost both sides less money than a typical court case. finally, arbitration is supposed to find a middle ground – a solution that is fair to both sides.

somewhere along the line, these ideas have been bastardized. arbitrators are often contracted or hand-picked by one side, the cost to arbitrate is sometimes higher than any benefit realized (& this entrance fee may or may not be weighed during the hearing) & arbitrators are beginning to act more like judges & less like mediators, awarding 100% in either direction.

this is not the spirit of arbitration & until the scales tip so they are in no party’s favor, any clause requiring them should be unconscionable under the law.

@Buran: the cost of court is often very high for a business in time, lawyers, fees, bad p.r. piece, etc., etc. many claims are settled simply b/c they cost less than to fight (even with a clear victory).

Well, I can’t find a cite, but I remember hearing of a court case where clauses like this in consumer contracts were unenforceable because there was no overt agreement to it by the consumer. In fact, I’m pretty sure that’s one of the basic tenets of contract law.

Is there one example of a case where a consumer was denied access to the courts because of one of these provisions?

@UCLAJASON I guess you misunderstood what I meant. All the people that lost arbitration against Corporation X using Arbitrator Y (where Y nearly always rules in favor of X) file as a Class Action against Arbitrator Y. Or at least have a bunch of people file complaints with the local AG.

Here’s the problem. Arbitration is supposed to be a “judge” who will take the facts and rule fairly and IMPARTIALLY. Since it’s a more relaxed environment, the costs are lower and supposed to benefit both sides. However, businesses are the ones that generally seem to select the arbitrators. Arbitrators that find with the consumer too often are not hired again. So, to protect that income stream, arbitrators have a financial incentive to find for the business. Now they are no longer impartial and their entire business is operating as a conflict of interest.

If that is found to be true, I think you have a potential cause of action against the arbitrators for misrepresenting that they are unbiased or impartial.

I’m really enjoying your comments in this post. I wasn’t able to find a case where a consumer just crossed out the arbitration clause and signed it and then challenged its validity, but there are a few (awesomely named) cases where the consumer just didn’t sign the contract and went about his/her normal business: Lee v. Red Lobster Inns of America, where the employee refused to sign an arbitration agreement but continued working there, the Sixth Circuit held it wasn’t enforceable because the company was unilaterally imposing it on the consumer; but in a similar case, God’s Battalion of Prayer Pentecostal Church v. Miele Associates, the court decided that by going about their business, the parties intended to be bound by the provisions of the contract.
It’s worth pointing out that in the first case, the arbitration agreement came after the employee began working, so it could be viewed as an attempt to modify the contract. Either way, if you know of a case where someone crossed out an arbitration provision and a court found that to be enough, I’d be interested to see it.

@ct03: That is NOT a case of the consumer trying to sue and being denied. This is a case of a consumer being sued for violating terms of a contract and counter-suing with a litany of ridiculous claims.

The assumption that any business is ripping you off because they have a form for you to sign is frankly, insulting. Most people who make that comment have no real knowledge how business works, and feel everyone is out to screw them. Look at any service or large transaction you sign for and you will find in most cases either a arbitration statement or an aggrement to litigate in the companies county. There are legalities in nearly every transaction we make, If you doubt that, turn over any ticket to any major sporting event or theme park and read the back. It is always the consumers choice not to sign a document, as is it mine as a business owner not to sell to them. That has nothing to do with ripping people off.

@htrodblder: There is a big difference between mandatory binding arbitration and an agreement to litigate in a specific location. Litigation in any actual court of law is protected by many things, including rules of evidence, right to an attorney, right to a trial by jury, right of appeal. Mandatory binding arbitration asks you to sign away your right to a trial.

@mac-phisto: Well, gee. Then that seems to me like a darn good incentive to not screw customers such that you have to worry about being sued! If you DO get someone angry at you, apologize (and be sincere about it) instead of treating them like dirt, too; there was a study done that showed that people who received honest apologies were less likely to actually go to court.

In Randolph, the consumer attempted to sue her lender under various federal statutes, but the lender filed a motion to compel arbitration; the district court granted the motion and dismissed the consumer’s complaint. The appellate life of the case dealt with whether the consumer could afford to pay for arbitration; the Eleventh Circuit said the consumer might not have been able to afford it and held the arbitration clause unenforceable, but the Supreme Court overturned that decision and held the arbitration clause unenforceable.

So, this actually IS a case of a consumer trying to sue and being denied. She tried to sue for violations of the Truth in Lending Act and Equal Credit Opportunity Act, and was dismissed because she had signed an arbitration agreement.

An interesting parallel from the credit card industry: a recent study found that the arbitrators (who have a financial incentive to keep the business of the banks) favor the banks in something like 94-95% of the cases, frequently ignore their own process guidelines, and offer little or no recourse for the customer after the initial ruling. You can read about it here: [www.paymentsnews.com] Just open the PDF report.